Credit Suisse Expects Another Strong Year For Refiners In 2016

In a new report, Credit Suisse analyst Edward Westlake discussed the 2016 outlook for U.S. independent refiners. Westlake believes the favorable market conditions that drove the refining business in 2015 will carry over into next year as well, making many refiner stocks strong buys.

Robust Gasoline Margins

Westlake noted exceptionally strong gasoline margins in the summer of 2015 were driven by strong demand in the U.S. and China. In fact, 2015 global gasoline demand grew at three times its historical rate in 2015. While consensus expectations for gasoline demand predict a regression closer to the long-term trend in 2016, Westlake believes gasoline demand has at least another year of strong demand growth remaining.

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Equity Outlook

Most refiner stocks have done pretty well lately, and Westlake has even been surprised at Q4 performance thus far. “There is around 20 percent still to play for (and more if gasoline spikes), but after the move, fresh money may want some kind of pull-back,” he explained.

Looking ahead to 2016, Westlake sees an environment conducive to earnings strength, especially among coastal names. “On balance, we think 2016 will be characterized by healthy earnings (driven by gasoline), with complex coastal refiners able to process cheaper medium crudes, with narrow mid-con crude differentials, and with diesel margins remaining challenged.”

Stock Picks

Credit Suisse has Outperform ratings on the following stocks:

• Alon USA Partners LP (NYSE: ALDW)
• Calumet Specialty Products Partners, L.P (NASDAQ: CLMT)
• Delek US Holdings, Inc. (NYSE: DK)
• Marathon Petroleum Corp (NYSE: MPC)
• Northern Tier Energy LP (NYSE: NTI)
• PBF Energy Inc (NYSE: PBF)
• Tesoro Corporation (NYSE: TSO)
• Valero Energy Corporation (NYSE: VLO)
• Western Refining, Inc. (NYSE: WNR)

Disclosure: The author holds no position in the stocks mentioned.

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